Medical underwriting can lead to higher premiums for the chronically ill, a situation that has spurred proposals mandating community rating. This paper combines data from the 1990 U.S. Census, price data from Blue Cross, and a simulation model based on the Health Insurance Experiment data to estimate health expenditures for a large statewide sample of Californians. The authors show that rural residents spend less than do urban residents, and even within urban areas, residents of wealthier parts of town spend more than those living in poorer parts of town. Mandated community rating would therefore result in substantial transfers of money from poorer and rural communities to urban and richer ones. Allowing premiums to be adjusted for regional costs of medical care would eliminate some of the transfer without sacrificing the benefits of community rating.
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